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What is a Payday Loan

by Mike

I’m sure you’ve heard the term payday loans before, but do you really what they are and how they work?  I’ve never had to take out a payday loan myself, but I’m familiar enough with them to give you a quick rundown.

A payday loan (sometimes referred to as a cash advance) is a small loan that is designed to help you make ends meet until your next paycheck arrives.  They are meant to be used for unforeseen expenses that just can’t wait until the borrower’s next paycheck arrives.  There are rules that limit the amount of money you can borrow through payday loans, and those amounts vary by state.  But generally speaking, the most you can borrow is only a few hundred dollars.

As a borrower you need to supply the payday loan company with a post-dated check or a pre-authorized debit form which authorizes the lender to automatically withdraw the funds from your account on a specific date (after your next paycheck is deposited).   So you get the cash you need right away and pay it back (with interest) as soon as you get paid.

Of course, the convenience of payday loans comes at a hefty price.  The interest rates on a payday loan can be crippling, so it is important that you read the fine print before signing on the dotted line.  It is never a good idea to sign an agreement without knowing exactly what you’re getting yourself into.

Remember that there are alternatives to payday loans too.  If you have an emergency fund set up you can temporarily tap into that and then replenish it after you get paid.  Even credit cards might be a better option because the interest rates should be much lower than a cash advance loan.

If you do decide to go with a payday loan, make sure you know the rules so you are protected against fraud.  Shop around to find the lender with the lowest rates.  And have a plan for paying all your expenses with your next paycheck, which will be short because some of it will be going to pay off the loan.

{ 2 comments… read them below or add one }

Lisa with VA Home Loan Centers

Good Article. The PayDay loan companies are so tricky. They don’t tell you upfront how much your interest rate is going to be. They also are very sneaky about their charges. I recommend trying to avoid these pay day companies. If you fall behind it can be very expensive and frustrating.
Lisa with VA Home Loan Centers´s last blog post ..Alpine County- California VA Loans &amp VA Home Loan Info

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[email protected] Advances US

In fact, according to the latest changes in legislature concerning payday loan companies, they had to disclose all the fees and interest rates, so, now consumers can easily get known as for these charges. Besides, no one makes people apply for payday loans. Moreover, some people consider them useful enough if there is some emergency that requires some extra cash. It’s just important to keep in mind that they should be used wisely. It won’t do any good if consumer borrow the amount he/she can’t afford to repay at once at the next payday.
[email protected] Advances US´s last blog post ..Online Cash Advances – Fast Online Loans With No Credit Check

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